Removing Barriers Blog

FASB Responds to Congress on its Credit Impairment Proposal

Posted February 25, 2016 by CUNA Advocacy

Responding to a
letter from lawmakers, FASB Chairman Russell Golden tried
to allay the concerns of community banks and credit unions regarding FASB’s
pending proposal on credit impairment. As we’ve reported,
FASB is in the final stages of reviewing a proposed standard that would
drastically change the accounting method for assessing credit impairment. The
proposal, which is expected to be finalized next quarter, would require a
forward-looking “current expected credit loss”—or CECL—model instead of the
current “incurred loss” approach.

Together with
the Independent Community Bankers of America (ICBA), we successfully
encouraged 62 members of Congress to sign on to a January
29 letter by Representatives Tipton (R-CO) and Murphy (D-FL) to Chairman
Golden, urging FASB to pause its current work on the standard and thoroughly
evaluate the potential harm the rule change may have on financial institutions’
ability to lend.

While we
are still concerned with the unintended consequences of the proposal, we
are somewhat encouraged by aspects of Golden’s response. Specifically, the
letter states that, “These [proposed] changes make clear that a community bank
or credit union will not be required to perform complex modeling or hire
outside consultants. To the contrary, these institutions will be able to use
information that is available today, including their own direct, personal
knowledge of their customers and local economic conditions.” These remarks are
consistent with those made by FASB and several banking regulators during a February
4 roundtable on the proposal.

Further, Golden
stated that, “The FASB is working with banking regulators to develop
educational initiatives to inform all financial institutions (especially
community banks and credit unions) about the new model’s flexibility as well as
how they can leverage their existing processes. Our collaboration with
regulators on educational initiatives will also directly address other
misunderstandings to allay concerns that the model requires community banks and
credit unions to hire outside consultants to help them procure necessary data.”
While we appreciate these comments, we are concerned that FASB’s position may
not translate into the behavior of NCUA and other agencies’ examiners in the
field.

We will continue to advocate for improvements to proposal and will keep you updated via this Removing Barriers Blog.

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